Ireland’s pension score slides to 10-year low in global index

Ongoing concern at the sustainability of Ireland’s pension system has meant the State slumped five places to its lowest ranking in a decade in the Mercer CFA Institute annual global pension index.
Ireland is now ranked 18th of the 48 retirement income systems examined worldwide which, between them, account for almost two-thirds of the world’s population.
The report uses more than 50 indicators to measure pension provision grouped broadly into adequacy (what benefits are future retirees likely to get?), sustainability (can the existing systems continue to deliver, notwithstanding the demographic and financial challenges?) and integrity (are the private pension plans regulated in a manner that encourages confidence in the long term?).
Ireland does relatively well on the integrity index where it ranks 14th worldwide. It is ranked 18th in terms of adequacy, with that measure adversely affected by the fall in the weekly rate of the State pension compared to national average pay rates. However, on both measures, Ireland’s ranking has slipped over the past year.
Sustainability has consistently been the biggest concern for the Irish pension regime in the index down several years. While it has maintained its ranking of 24th this year, its score under this heading has fallen to 52.8 from 54.4.
The fall in expected pension income as a proportion of pre-retirement income over the past year and lower household savings were among the factors hitting Ireland’s ranking.
Ireland operates a flat-rate contributory State pension on the basis of a PRSI record alongside a means-tested non-contributory pension for those who have not made enough PRSI contributions. This runs alongside private voluntary occupational and personal pension schemes.
Ireland’s integrity score was boosted by the move of many occupational schemes into master trusts over the past year, according to Mercer Ireland defined contribution and private wealth leader Caitriona MacGuinness, “due to the professionally run nature of these schemes and the additional regulatory oversight they receive”.
While Ireland ranks below average on sustainability, she said the introduction of a new mandatory workplace pension scheme — auto-enrolment — for everyone between the ages of 23 and 60 who is earning more than €20,000 and is not already signed up to a workplace pension should improve the State’s ranking in the future. Auto-enrolment is now due to come into force at the end of September next year.
“This new regime should reduce dependence on the State pension as the numbers saving for retirement increases over time,” she said, while also welcoming increased flexibility in State pension drawdown and rising rates of PRSI.
The Mercer report says measures to increase the labour force participation rate at older ages as life expectancy rises and providing more protection for accrued benefits in private pensions could also help boost Ireland’s ranking.
Globally, the report said the move to defined contribution pension schemes — where retirement income is determined by the investment performance of pension contributions — “requires individuals to make complex financial planning decisions that may significantly impact their financial circumstances and yet many individuals are not well-prepared to manage the required decisions”.